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OUTER HOUSE, COURT OF SESSION
[2008] CSOH 75
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P589/08
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OPINION OF LORD GLENNIE
in the Note by
THOMAS M BURTON,
the Liquidator of THE BEN LINE STEAMERS LIMITED (in liquidation)
for
An order for audit
of his accounts and intromissions and to fix outlays and remuneration etc.
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Noter:
Sellar, Q.C.; Dundas &
Wilson, W.S.
4 March 2008
[1] The
noter is the liquidator of Ben Line Steamers Ltd. In Notes lodged in process in the
liquidation, the noter explains that there are disputes about outstanding
claims in the liquidation which, in his opinion, raise issues of legal
difficulty and significance and which have prevented him to date from making
any distribution to the creditors of the company and bringing the liquidation
to an end. It is not clear to him when
those disputes will be resolved. In
those circumstances he seeks on an interim basis an order for audit of his
accounts and fixing of his remuneration as liquidator, leaving over the
possibility of a further application or applications hereafter. The application in fact only covers the
period from 17 March 2003 to 16 September 2007, the period prior to the
former date having been the subject of an earlier order of the court, and the
latter date being the end of the last six month accounting period before the
Note was lodged.
[2] In the
Note, the liquidator also asks the court to waive his non-compliance with the
provisions of section 53 of the Bankruptcy (Scotland) Act 1986 ("the Bankruptcy
Act"), as applied to liquidations. This
raises a recurring question of practice upon which it has become apparent that
some guidance is required.
[3] Part 4
of the Insolvency (Scotland) Rules 1986 contains
provisions applicable to a winding up by the court. Those provisions, with certain modifications,
are applied to a creditors' voluntary winding up by Part 5 of the Rules. The principal provision dealing with the
determination of the liquidator's outlays and remuneration is Rule 4.32, which
provides that
"4.32(1) Subject to the provisions of Rules
4.33 to 4.35, claims by the liquidator for the outlays reasonably incurred by
him and for his remuneration shall be made in accordance with section 53 of the
Bankruptcy Act as applied by Rule 4.68 and as further modified by paragraphs
(2) and (3) below."
Paragraph (2) of Rule 4.32 inserts a new sub-section (1A)
into section 53 of the Bankruptcy Act in so far as that section is applied
to liquidations. I refer to that new
sub-section later. Paragraph (3) makes a
consequential modification to section 53(6) of the Bankruptcy Act.
[4] Rule
4.68 provides that:
"4.68(1) Sections 52, 53 and 58 of the
Bankruptcy Act shall apply in relation to the liquidation of a company as they
apply in relation to a sequestration of a debtor's estate, subject to the
modifications specified in Rules 4.16(2) and Rule 4.32(2) and (3) and the
following paragraph and to any other necessary modifications."
It is unnecessary to refer to these paragraphs in
detail at this stage. It is, however, to
be noted that Rule 4.16(2) effects changes to the language of the provisions of
the Bankruptcy Act so as to make it applicable to liquidations, for example
"liquidator" for interim and permanent trustees and "liquidation" for
"sequestration".
[5] Sections 52
and 53 of the Bankruptcy Act (as amended) provide, so far as relevant, as
follows (with the necessary insertions and linguistic substitutions appropriate
to liquidations identified in italics):
"52 Assets to be distributed in respect of accounting periods
(1) The liquidator
shall make up accounts of his intromissions with the company's assets in respect of each accounting period.
(2) In this Act 'accounting period' shall be construed as follows
-
(a) ... the first accounting period shall be
the period of 6 months beginning with the date
of commencement of winding up ...
(b) any subsequent accounting period shall
be the period of 6 months beginning with the end of the last accounting
period; except that -
(i) ...the liquidator and the liquidation
committee or, if there [is] no liquidation committee, the court agree; or
(ii) ...
that the accounting period
shall be such other period beginning with the end of the last accounting period
as may be agreed ..., it shall be that other period.
(2ZA) ...
(2A) An agreement ... under subsection (2)(b)(i) ... above -
(a) may be made in respect of one or more
than one accounting period;
(b) may be made before the beginning of the
accounting period in relation to which it has effect and, in any event, shall
not have effect unless made before the day on which such accounting period
would, but for the agreement ..., have ended;
(c) may provide for different accounting
periods to be of different durations, and shall be recorded in the sederunt
book by the liquidator.
...
53 Procedure
after end of accounting period
(1) Within 2 weeks after the end of an accounting period, the liquidator shall in respect of that
period submit to the liquidation
committee or, if there [is] no liquidation committee, to the court -
(a) his accounts of his intromissions with
the company's assets for audit and,
where funds are available after making allowance for contingencies, a scheme of
division of the divisible funds; and
(b) a claim for the outlays reasonably
incurred by him and for his remuneration; and, where the said documents are
submitted to the liquidation committee,
he shall send a copy of them to the court.
(1A) The
liquidator may, at any time before the end of an accounting period, submit to
the liquidation committee (if any) an interim claim in respect of that period
for the outlays reasonably incurred by him and for his remuneration and the
liquidation committee may make an interim determination in relation to the
amount of the outlays and remuneration payable to the liquidator and, where
they do so, they shall take into account that interim determination when making
their determination under subsection (3)(a)(ii).
(2) Subject to sub-section (2A) below, all
accounts in respect of legal services incurred by the liquidator shall, before payment thereof by him, be submitted for
taxation to the auditor of the court before which the liquidation is pending.
(2A) Where -
(a) any such account has been agreed between
the liquidator and the person
entitled to payment in respect of that account (in this subsection referred to
as 'the payee');
(b) the liquidator is
not an associate of the payee; and
(c) the liquidation
committee [has] not determined
that the account should be submitted for taxation,
the liquidator may pay such account without submitting it for taxation.
(3) Within 6 weeks after the end of an accounting period -
(a) the liquidation
committee or, as the case may be, the court
...
(i) may audit the accounts; and
(ii) shall issue a determination fixing the
amount of the outlays and remuneration payable to the liquidator; and
(b) the liquidator
shall make the audited accounts, scheme of division and the said determination
available for inspection by the company
and the creditors."
I note that no liquidation committee has been formed
in the present case.
[6] The
current practice in the Court of Session, which has developed to give effect to
these provisions, is for the liquidator to lodge a Note with the court seeking
to have a court reporter appointed for the relevant accounting period. The reporter advises the court as to the
intromissions with the company's assets shown in the account submitted by the
liquidator. The reporter also considers
the liquidator's claim for outlays and remuneration and confers with the auditor
of the Court of Session. Thereafter both
the reporter and the auditor issue their own reports which provide the basis
upon which the Court will consider the matter and issue an interlocutor fixing
the same.
[7] The
incorporation of sections 52 and 53 of the Bankruptcy Act is
unsatisfactory and has given rise to problems.
For example, certain paragraphs which I have omitted from the quotation
from section 52(2)(b), as modified and read literally, appear to conceive of
the possibility that the court itself may be the liquidator. Of more direct relevance here, the requirement
put on the liquidator to make up accounts of his intromissions with the
company's assets and to submit those accounts, together with his claim for his
outlays and remuneration, to the court every six months, imposes a burden on
the liquidator which is in most cases not only unnecessary for, but also a
distraction from, the proper conduct of the liquidation. Not only that, but the preparation of such
accounts and the claim for outlays and remuneration in the detail required for
their submission for taxation, coupled with the process of taxation and the
preparation of a report by an independent reporter appointed by the court,
involves the incurring of considerable expense in the liquidation and a
corresponding depletion of the funds available for distribution. To that extent it does not appear to be in
the interest of the creditors.
[8] It has
therefore been commonplace for a liquidator to wait until the end of the
liquidation, or at least for periods significantly longer than six months,
before applying to the court for an audit of his accounts and for a remit to
the auditor of court and a reporter in respect of his outlays and remuneration
over a number of accounting periods. In
the present case, which is not untypical of the general approach, the noter
says (in Statement 3.5.2 of the Note) that he has
"not submitted accounts of
his intromissions nor a claim for his remuneration and outlays, within two
weeks after the end of each of the Accounting Periods, as required by Section
53(1) of the Bankruptcy Act. This course
of action was taken by the Noter in order to preserve the assets of the Company
for the benefit of its creditors. The
Noter has now been advised that that course was not correct in law, albeit that
it was intended to benefit the Company's creditors."
He goes on to submit that, in the particular
circumstances of the unresolved dispute about certain claims, it is now appropriate
to submit an application.
[9] In
making such an application, a liquidator will require to seek a waiver of his
failure to comply with the time limits under section 53 (and, in some
cases, those under section 52).
Because of the obvious benefit to the creditors of such a course being
adopted, the court has in the past looked sympathetically on such applications.
[10] Rule
7.32 of the Insolvency (Scotland) Rules confers power on the
court to cure defects in procedure by applying section 63 of the
Bankruptcy Act with certain modifications.
So far as relevant, this provides as follows (with the modifications
again shown in italics):
"63 Power to cure defects in
procedure
(1) The court may, on
the application of any person having an interest:
(a) if there has been a failure to comply with any requirement of
the Act or the Rules, make an order
waiving any such failure and, so far as practicable, restoring any person
prejudiced by the failure to the position he would have been in but for the
failure;
(b) if for any reason anything required or authorised to be done
in, or in connection with, the insolvency
proceedings cannot be done, make such order as may be necessary to enable
that thing to be done.
(2) The court, in an
order under subsection (1) above, may impose such conditions, including
conditions as to expenses, as he thinks fit and may -
(a) authorise or dispense with the performance of any act in the insolvency proceedings;
(b) ...
(c) extend or waive any time limit specified in or under this
Act."
In the present case the noter, as is commonplace in
proceedings such as this, has included in the Note a request that the court
waive his failures to comply with the requirements of sections 53(1) and
53(3)(b) of the Bankruptcy Act as applied to liquidations in respect of the
accounting periods from 17 March 2003 to 17 September 2007.
[11] A question
has arisen as to the appropriate stage at which the court should be asked to
waive such requirements. Different
opinions have been expressed as to the usual practice of the court, but my
understanding is that for the last year or so, and probably for a few years
before that, the court has dealt with the question of waiver at the time of
remitting to a reporter the liquidator's accounts of his intromissions with the
assets of the company and of remitting to the reporter and to the auditor of
court the question of a suitable sum for the liquidator's outlays and
remuneration. This has some attraction,
since the validity of the remit to the reporter and the auditor ought logically
to be dependent upon the waiver of the liquidator's failure to apply for that
remit within the time allowed. But such
a course has its problems, in particular the fact that the court at that stage
is being asked to waive these irregularities without knowing anything of the
amounts involved or the general conduct of the liquidation.
[12] In the
instant case, however, the noter asks the court to grant the remit of his
accounts and claim for payment first, and to consider the question of waiver
only after the reporter and auditor have reported back on the matters remitted
to them. I see no reason why this course
should not be followed. I do not
consider that the competence of the remit to the reporter and the auditor is
dependent upon the waiver first having been granted. In those circumstances I have decided to
grant the order sought and to leave over consideration of the question of
waiver.
[13] Two
points should perhaps be mentioned. The
first is that there is no pressing need for there to be one single and
immutable practice in this regard, provided that those who are engaged in this
part of the law are aware of what the permissible courses are. There is much to be said for the idea that
the court is better placed to decide the question of waiver at the second
stage, once it is placed by the reports of the reporter and the auditor of
court in possession of the full facts relating to the conduct of the
liquidation and the liquidator's claim for outlays and remuneration. On the other hand the grant of the waiver at
the early stage is jurisdictionally more coherent and causes no prejudice
provided that the court is given sufficient information upon which to exercise
its discretion. Parties applying for a
waiver at this early stage are now invariably asked for a statement as to the
sort of amount intended to be claimed by way of outlays and remuneration and
for a brief account of the conduct of the liquidation, though I emphasise that
a detailed account prepared by accountants for the purpose of taxation is not
required. If, having been provided with
this information, the court is in any doubt about whether or not to grant the
waiver, it will simply continue the question of waiver until after receipt of
the reports from the reporter and the auditor.
[14] The
second point is this. Applications for
waiver are habitually made after the event.
There is power in section 52(2)(b)(i) of the Act as applied to
liquidations - and I have set out the text of that sub-section as modified earlier
in this Opinion - for agreement to be reached at an early stage between the
liquidator and the court that the second and subsequent accounting periods
should not be six months but should instead be such longer period as may be
agreed. Subject to hearing argument, I
see no difficulty in the liquidator making an application to the court at an
early stage of the liquidation for a longer accounting period to be fixed. In an appropriate case, this might be for a
period lasting until the end of the liquidation. Such an alteration to the accounting period
would carry forward to the requirements in section 53. Such an application would have to be made by
motion and supported by reasons. If the
court was minded to make such an order, thus signifying its agreement, the need
for multiple waivers to be sought after the event would disappear. I do not think that a liquidator need be
apprehensive that by agreeing a longer period he would render himself unable to
seek interim payment should a pressing need for payment arise due to some
unforeseen circumstances. Nothing in the
Rules prevents an application being made for interim payment, and in any event
the provisions of section 53(1A) might apply in such circumstances. Although sub-section (1A) does not include the
usual formula "or if there is no liquidation committee, the court", this is
obviously a slip and it seems to me that the court should read that sub-section
as though such words were there.
